MALAYAN BANKING BERHAD v. CHINA INSURANCE CO LTD

CACV 424/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 424 OF 2002

(ON APPEAL FROM HCCT NO. 48 OF 1999)

---------------------

----------------------

-----------------------

J U D G M E N T

-----------------------

Hon Woo JA (giving the judgment of the Court):

1. This is an application for leave to appeal to the Court of Final Appeal against our judgment handed down on 10 June 2003.

2. The application is made under section 22(1)(b) of the Hong Kong Court of Final Appeal Ordinance, Cap. 484 which reads:

"(1)	An appeal shall lie to the Court-
	(a) ...;
	(b) at the discretion of the Court of Appeal or the Court, from any other judgment of the Court of Appeal in any civil cause or matter, whether final or interlocutory, if, in the opinion of the Court of Appeal or the Court, as the case may be, the question involved in the appeal is one which, by reason of its great general or public importance, or otherwise, ought to be submitted to the Court for decision; ...."

3. The intended appeal relates to our refusal to strike out certain paragraphs of the re-amended statement of claim.

4. Put shortly, the statement of claim alleges that there were breaches by the contractor Molitoko Limited ("Molitoko") of a Development Agreement to build a hotel for United Trump International Limited ("UTIL"), the owner of the site for the hotel, that the construction work was not completed and that UTIL has suffered loss and damage by way of wasted expenditure. The plaintiff was party to and representative of the banking group that financed the project and to whom UTIL had, for the loans, including the loan for buying the site, assigned the rights and benefits of the project. The plaintiff had abandoned its claim for damages for the delay in Molitoko's completion of the Development Agreement. The defendant was the insurance company that had issued a performance bond for Molitoko's performance of the Development Agreement.

5. In our judgment dated 10 June 2003, we held that the way in which the statement of claim was pleaded shows clearly that the plaintiff alleged that the loss and damage by way of wasted expenditure were caused by Molitoko's breaches of the Development Agreement (para 18 of the judgment). We also held that assuming that Molitoko was guilty of breaches of the Development Agreement, as pleaded by the plaintiff, there would be two courses of action open to UTIL: to complete the project or to abandon it. If UTIL chose to complete the project, Molitoko's breaches would have caused a delay in the completion of the hotel with consequential damages. If UTIL chose to abandon the project, the interest on the loans and on its own capital outlay would all be wasted and the construction costs incurred before the abandonment also wasted. See para 22 of the judgment. We also held that whether the wasted expenditure was caused by Molitoko's breaches, or by UTIL's abandonment independent of Molitoko's breaches would be a matter for trial.

6. By its Notice of Motion for leave to appeal to the Court of Final Appeal dated 7 July 2003, the defendant raised four questions as questions of great general or public importance, whereby under section 22(1)(b), leave to appeal to the Court of Final Appeal should be granted. The four questions are set out below:

(1)	whether interest on the capital outlay by an owner in the purchase of a site can be claimed as wasted expenditure against a building contractor for breach of the construction contract between the building contractor and the owner in circumstances where the claim for damages for delay had been abandoned; or alternatively,
(2)	whether upon the facts pleaded there can be any causal link between the incurrence of interest on the capital outlay by the owner in the purchase of the site and the contractor's breaches in the performance of a construction contract;
(3)	whether the failure by a party to plead causation in a claim for breach of contract renders the pleading liable to be struck out when that party had been given notice of the deficiency in its pleading; and
(4)	what does a Plaintiff in a wasted expenditure claim have to plead and/or prove in order to transfer the evidential burden of disproving the claim (or any part thereof) to the Defendant.

7. In the Skeleton Arguments dated October 2003 of Mr Yu SC, for the defendant, only the following three questions were raised, namely,

(1)	the same as in para 6(1) above; or alternatively,
(2)	the same as in para 6(2) above; and
(3)	whether a claim for damages which do not naturally flow from the breach of contract alleged ought to be struck out in the absence of averments of material facts tending to establish a causal link between the breach and the damages alleged.

8. Just before we started the hearing, Mr Yu submitted yet four questions which replaced the above two sets of questions. These questions are:

(1)	whether it is always open to an owner of a site to claim interest on his capital outlay in the purchase of a site as wasted expenditure against a building contractor for breach of the construction contract;
(2)	whether the establishment of a casual link between the incurrence of interest on the capital outlay by the owner in the purchase of the site and the contractor's breaches in the performance of a construction contract is a material fact which requires to be pleaded and proved;
(3)	the same as para 7(4) above;
(4)	whether a claim for damages which do not naturally flow from the breach of contract alleged ought to be struck out in the absence of averments of material facts tending to establish a causal link between the breach and the damages alleged.

9. It is submitted by Mr Yu SC on behalf of the defendant that our judgment of 10 June 2003 raises an important and general question on the practice of pleading, more specifically in relation to the pleading of causation and loss and damage resulting from a breach of contract. This is not so. Our decision was based on the way in which the statement of claim was pleaded and in the circumstances of the facts as pleaded. See paras 4 and 5 above.

10. Mr Yu also submits that the courts have repeatedly emphasized the importance of putting forward the issues in a case so that the other party will be fully aware of the case he has to meet. He refers us to the cases of Poon Hau Kei v Hsin Chong Construction Co Ltd [2003] 2 HKLRD 56 at 68, On Hang Chu v Chan Ngun, CACV No. 3780 of 2001 (9 July 2003, para 23), Guang Xin Enterprises Ltd v Kwan Wong Tan and Fong, CACV 263 and 292 of 2002 (13 March 2003) and Wharf Properties v Eric Cumine Associates, 45 BLR 72 (CA), [1991] 2HKLR 154 (Privy Council) at 163 to emphasize the point that a plaintiff should plead specifically as to how the alleged breach of contract by Molitoko caused the alleged loss and damage. He stresses that on the facts as pleaded in the statement of claim, there is simply no correlation between the alleged breaches and the financial consequences alleged.

11. Mr Tong SC, on behalf of the plaintiff, pointed out in his Note of Submissions of the Plaintiff dated 31 October 2003 that the law as now raised by Mr Yu on pleadings was a thinly disguised attack on the correctness of our decision and did not even begin to elevate the matter to one of "great general or public importance" as required by section 22(1)(b) of the Ordinance. Mr Tong submitted that all the three questions proposed to be raised in Mr Yu's Skeleton Arguments (which were thought to have replaced those in the Notice of Motion) for the consideration of the Court of Final Appeal were fact sensitive and peculiar to the unusual circumstances of this case. Mr Tong referred us to Lonrho Plc v Tebbit [1991] 4 All ER 973, at 979F-980C, where Sir Nicholas Browne-Wilkinson VC dealt with the law relating to striking out and stated:

"In considering whether or not to decide the difficult question of law, the judge can and should take into account whether the point of law is of such a kind that it can properly be determined on the bare facts pleaded or whether it would not be better determined at the trial in the light of the actual facts of the case. The methodology of English law is to decide cases not by a process of a priori reasoning from general principle but by deciding each case on a case-by-case basis from which, in due course, principles may emerge. Therefore, in a new and developing field of law it is often inappropriate to determine points of law on the assumed, and scanty, facts pleaded in the statement of claim."

12. Regarding the last set of three questions now proposed to be raised by Mr Yu, he stresses that all of them are questions of law and practice of great general or public importance involving pleading, burden of proof and causation in the context of contract law. The resolution of these questions by the Court of Final Appeal, so he submits, are not only important for developers and contractors, especially in the light of the present economic climate where projects may be abandoned, but are also important for insurers who issue performance bonds. When asked as to what he wants further from the pleading in the statement of claim, Mr Yu's answer is that there must at least be some nexus between breach and damage.

13. In his Note of Submissions, Mr Tong pointed out that the set of three questions contained in Mr Yu's Skeleton Arguments should not be allowed to go before the Court of Final Appeal. Mr Tong submitted that Questions (1) and (2) under paragraph 7 above were based on the facts as pleaded in the statement of claim, whereas even if Question (3) under the same paragraph raised pure law, that question should not be submitted to the Court of Final Appeal because that would be based on scanty and assumed facts, contrary to the principle laid down in Lonrho v Tebbit.

14. In his oral submissions, Mr Tong asks us to note the difference in wording between the various versions of questions proposed by the defendant to demonstrate how much difficulty those representing the defendant had in framing proper questions on which to seek leave. Such difficulty shows that there was no proper question to justify putting it forward for the determination of the Court of Final Appeal.

15. Mr Tong also draws our attention the three questions under paragraph 7 above raised in Mr Yu's Skeleton Submissions as compared with the four last-ditch questions under paragraph 8 above. Mr Tong submits that this last set of questions is an attempt to avoid their being fact sensitive and therefore not of great general or public importance for the determination of the Court of Final Appeal, but they still do not justify leave. Regarding Question (1) under paragraph 8 above, he submits that that was not a question decided by us in our judgment, as our decision was based on the facts as pleaded. Question (1) therefore did not arise out of our decision; otherwise it would be a question peculiar to the facts as pleaded in the statement of claim.

16. Questions (2) and (4) under paragraph 8 above are, so Mr Tong submits, the two sides of the same coin. The law raised by the two questions were not matters in dispute before us and he accepts that the plaintiff needs to establish a causal link between breach and damage. This Court had decided that sufficient material had been pleaded by the plaintiff as the casual link. If the questions concern law of wide application, that should not be determined on scanty and assumed facts, but should only be determined first at trial when all the relevant facts are thrashed out and found by the judge.

17. Regarding Question (3) under paragraph 8 above, Mr Tong's challenge is two-pronged. First, the principle enunciated in Lonrho v Tebbit applies. Second, the question is open ended. What facts to plead must be facts that appear in each particular case. On the other hand, if the question is confined to the case as pleaded in the statement of claim, then the question is fact sensitive and not of general application.

18. We agree with Mr Tong's submissions. In the last set of proposed questions, Question (1) is not what we decided in our judgment of 10 June 2003. What we decided was that the statement of claim should not be struck out because it was not plain and obvious that there was want of necessary averments connecting the breaches of Molitoko with the damages by way of wasted expenditure claimed by the plaintiff. The other three questions, when couched in general terms as to the law and practice relating to causation and burden of proof, again were not what we decided in our judgment. Our decision was based on the facts as pleaded in the statement of claim, though the facts as pleaded are scanty and both the judge below and we agreed that whether the wasted expenditure as pleaded by the plaintiff was as a result of Molitoko's breaches should be a matter for trial and evidence. These questions, so viewed, are fact sensitive and cannot properly be elevated to be of great general or public importance. Even if accepting that one or more of the questions proposed are not necessarily fact sensitive, we are not persuaded that the Court of Final Appeal should be tasked to deal with the point of law on the bare, scanty or assumed facts as pleaded in the statement of claim.

19. Nor are we persuaded that this is such an exceptional case that we should exercise our discretion under the "otherwise" limb to allow this matter to go before the Court of Final Appeal.

20. In the circumstances, we dismiss the application and make an order nisi that the defendant bear the costs of this application.